Govt starts Coal India restructuring process

State-run coal miner Coal India Ltd is heading for a restructuring, with the government on Monday inviting expressions of interest (EoI) from consultants to draw out a plan. The idea is to spin off CIL subsidiaries as independent entities to ramp up production by infusing competition.

“It has been proposed to take up a study for restructuring CIL to assess drawbacks inherent in a monopolistic situation, for improving competition among coal mining companies, for evolving administrative structures to enhance planning capability in companies and improving investment plans,” the coal ministry said in a statement. Consultants have 15 days to submit EoIs and three months to submit the report.

Restructuring of CIL was originally proposed by the T L Shakar committee on coal sector reforms that submitted its recommendations in 2007. The panel had suggested staying away from any major legal or administrative restructuring of the coal behemoth. It had, however, recommended making changes at the board level by making the chairman and managing director (CMD) of CIL the chairman of the boards of all subsidiaries. The idea was to hold the CIL CMD accountable for the performance of subsidiaries.

The Shankar committee had asked the government to go for the restructuring in the 12th Plan period (2012-17). The government had accepted the recommendation. Accordingly, the 12th Plan document pitches for spinning off the CIL subsidiaries as separate public sector companies, “encouraged to develop their own strategies of coal development, including joint venture activities and acquisition of assets abroad”.

Coal India was formed in 1975 as part of the effort to nationalise the coal sector by enacting the Coal Mines Nationalisation (CMN) Act. Four coal production subsidiaries were set up, based on location of coal reserves across India, in addition to a technical exploration arm, Central Mine Planning and Design Institute of India Ltd. Later, three more production subsidiaries were added.

CIL alone accounts for over 82 per cent of India’s 532 million tonne (mt) coal production. The miner produced 435 mt coal last financial year. This was a marginal--less than two per cent – increase compared to the previous year. The company’s output has remained stagnant over the past two years owing to capacity constraints and delays in clearances for new mines. The lag in production is likely to force costly imports to jump from the current 90 mt annually to 200 mt by 2017.

CIL’s monopoly has often come in for criticism by customers, largely power companies, which blame the miner for abuse of its monopoly in production to dictate prices. CIL denies the allegation.